Word of the day: Uniform Transfer to Minors Act
If you are a parent or grandparent, you might want to transfer ownership of money to a minor. One option is to establish a trust. The Uniform Transfer to Minors Act (UTMA) and the Uniform Gift to Minors Act (UGMA) offers an alternative to the trust that may be simpler and cost you less money.
These accounts allow you to invest for a child while taking advantage of his or her potentially lower tax rate. An account can be established for a child under the Uniform Gift to Minors Act (UGMA) or the Uniform Transfer to Minors Act (UTMA), depending on your state of residence. The transfers made to an account of this type are considered an irrevocable transfer to the minor in whose name the account is registered.
These accounts are not specifically designed for college expenses, however, an increasing number of people are using UGMA/UTMA accounts as an alternative way to save for college expenses.
Who’s Eligible:
The UGMA/UTMA accounts can be established for any child under the applicable age (usually 18 or 21, but in some states it’s 25). An adult is assigned to be the custodian to manage the account for the minor’s benefit until the minor reaches the age outlined in the statute. Once the minor reaches the required age, the custodian is responsible for distributing or transferring the funds to the minor. There are no income restrictions attached to these accounts. Â Furthermore, anyone is allowed to make gifts to a child’s UGMA/UTMA account.
Source: State Farm